Wealth Tax Regulations

On the 1st of January 2018, the ‘impôt de solidarité sur la fortune’, usually ISF, burst forth, delivering a surge of interest into the French real estate and property market. For those seeking to relocate across the channel, President Macron’s brainchild is quickly becoming a hugely popular option. It also means that both French residents and expats are celebrating the most prized monetary possession, ‘the tax cut’. 

What Does this Mean?

Currently, French residents with global wealth exceeding €1.3 million pay a 1.5 per cent levy. This law has resulted in more than 60,000 millionaires leaving the country since the turn of the century.

Tax experts are predicting that many will now return, given that this will apply only to worldwide property. It also means investors looking for both French luxury homes and charismatic castles have been presented with a wonderful opportunity to find their dream property free of penalties. Here’s a concrete example below :

• For a property purchased at 1,300,000 euros, there’s no tax on the first €800,000. For €800k-€1,300,000, the tax calculation would be €500,000 x 0,50 = €2,500.
• For a property bought at 1,500,000 euros, the calculation is: €2.500 for up to €1,3M + €200.000 x 0,70 = €1.400 for the next band from €1,3M to € 1,5 M.

Therefore, the yearly additional cost would be 3,900 euros in total for a 1,5M property and just 2,500 euros for a 1,3M property or château.

A Surge in Interest

In fact, agents are reporting that inquiries about properties are at their highest level in a decade due to the tax changes. The Riviera, the Dordogne, Occitanie and Provence are all feeling the benefit in this sense. The market capital, in particular, will benefit from the new regulations, given that demand currently exceeds supply.

This, of course, will slowly balance out as the year goes on, as the buyers’ market becomes much more competitive as the tax burden eases. And it’s a trend set to continue, with ex-pats benefiting regardless of the type of property they invest in.

It is believed the newly introduced reform will cost the government €3.2 billion in tax revenue. The timing couldn’t be better as most agents make an extra effort at this time of year to bring new properties to market, ready for that added Spring interest from potential investors.

A Pivotal Tax Year in France

In reality, this represents a clear reduction of the tax burden on non-property assets. But remember – if the value of any real estate assets and rights within France or worldwide exceeds €1.3 million, ex-pats will still have to pay the new tax.

In truth, recent French legislation has tended to lead to higher taxation, so 2018 seems certain to be pivotal for taxation on accrued wealth. According to tax experts, by using mortgages in a canny combination with non-property investments, financial liabilities in France could be all but eliminated.

From the first of January, mortgages could be offset, with house contents valued at either 5% of total assets or their real value. French authorities are expecting a 70 per cent drop in revenues because of this. And let’s not forget France is the largest country in the European Union, and the world’s fifth-largest economy in terms of nominal GDP.

Searches for Castles & Luxury Homes

Of the total percentage of international property buyers, three per cent purchase castles, and many more secure investments in luxury French real estate. And of course, there are two very important things you must analyse carefully before beginning your castle or luxury property search. What’s your realistic budget, and how might the property be used?

If you have no plans to live in your castle and don’t want to carry out full renovations, but still retain a luxury home, you could rent out the property to help with maintenance costs. It’s always a good idea to wait for a better exchange rate before making an offer on any property, because even if the sale price doesn’t change, a favourable exchange rate might still make it less expensive. 

Call for Action

With prices rising and the number of French property sales increasing, putting off that long-held ambition of purchasing a dream home across the channel could be costly in the long run. But as always, employ the services of a company with long-term, in-country knowledge and a solid reputation for excellent service. Good research is absolutely key.